Thursday, January 10, 2013

It still has huge
room for growth given the low existing pay TV household penetration rate
of 50%, a potential uptick in ARPU as subscribers migrate to the HD
platform, its superior content and high entry barriers to the pay TV
industry due to significant economies of scale.

Currently (Dec
2012) 1.8 million households have already migrated over to the HD
platform (55% of Astro’s pay TV subscriber base) and management intends
to swap out most of its legacy standard definition set top boxes by end
FY2014.

It is believed that most of its customers will subscribe
to High Definition (HD) contents when the company migrates all its
customers to the new HD platform. As at October 31, 2012, Astro has over
3.2 million subscribers, of which about 1.77 million (or 55 per cent of
subscribers) are currently (Dec 2012) watching their TV contents via
the Astro B.yond set-top boxes. Of the 1.77 million customers, about
two-thirds subscribe to HD contents.

HD channel is one of its key
differentiators against what is available out there, whether it's
privacy or other content providers.

Having most of its customers
to subscribe to HD contents is one of the key for Astro's growth over
the next few years from Dec 2012.Astro’s partnership with Maxis and
TimeDotCom to provide IPTV services to the masses could provide a new
avenue of growth, with the bundling of voice, broadband and IPTV
services to offer new products to consumers.

It will be catalyzed by a convergence of media platforms and successful execution of its new IPTV product.

After
all, Astro’s dominance today (Dec 2012) grew on the back of monopoly –
which ends in 2017 – of satellite technology which is old compared with
HSBB-powered TV.

Competition will be stronger as Astro will be
challenged by TM’s triple play service on HSBB network. Astro is looking
to launch its triple play service with MAXIS by end of Jan 2013 and on
TM’s fiber network by April 2012.

Astro enjoys a monopoly on the
pay TV industry with a market share of more than 95% and TM;s Hypp TV
being its only. However, ABN Media Corp, a newcomer in the pay TV is
looking to challenge the incumbent with grand and ambitious plans in
mind.

Regardless of how ABN ups the ante against Astro, industry
observers do not foresee the latter faltering and surrendering market
share given its strong brand and resilient ecosystem which the company
took many years to establish and nurture.

Some observers opined that AStro still faces the threat of new players, high content costs and regulatory risks.

It
is open to sharing its contents with its rivals - as long as it makes
business sense to the company and the company is constantly in talks
with parties on such arrangements. Under the new content-sharing rules,
all TV stations without broadcasting rights to certain major sports
events would be able to share the contents obtained from rights holder
on reasonable commer-cial terms.

Its revenue rose 11.5% to
RM3.133bil from RM2.811bil mainly due to the increase in subscription
and advertising revenue of RM269.4mil and RM52.2mil respectively.

On the outlook, Astro TV expected subscriber net additions, ARPU and adex to continue to contribute to its revenue growth.

The
conversion of residential subscribers to Astro B.yond set-top boxes is
progressing according to plan and is expected to complete by the next
financial year. This will continue to drive higher take-up of value
added services such as high definition, recording services and
Video-On-Demand, which are the primary drivers of ARPU growth.

However,
this is expected to impact the group EBITDA and net profit for the
remainder of this financial year. The group continues to have good
visibility in respect of content costs which are in line with its
expectation.

It reported net profit of RM118.08mil in the third
quarter ended Oct 30, 2012 from RM103.52mil a year ago, boosted by
unrealised foreign exchange (forex) gains.

There was an
unrealised forex gain of RM30.6mil versus an unrealised forex loss of
RM47.4mil a year ago, which was offset by a decline in earnings before
interest, tax, depreciation and amortisation (EBITDA) of RM14.3mil and
higher depreciation of RM45.6mil.

Revenue rose 8.3% to
RM1.078bil from RM995.31mil a year ago. Earnings per share were 5.20
sen. It declared an interim dividend of 1.5 sen per share.

The
higher revenue was mainly due to the increase in subscription revenue of
RM74.5mil. The increase in subscription revenue is attributed to both
an increase in ARPU for Pay-TV residential subscribers of RM4.90 (from
RM87.40 to RM92.30) and an increase in number of Pay-TV residential
subscribers from 3,013,500 to 3,213,100.

However, group earnings
before interest, tax, depreciation and amorisation fell by RM14.3ilm
from a year ago mainly due to higher installation, marketing and
distribution costs. These were in relation to customer acquisition as
well as higher B.yond boxes swap out, higher content costs, staff
related costs and impairment of receivables.

As for its
cashflow, cash and cash equivalents increased to RM927.4mil from a year
ago mainly from proceeds from the shares issuance, net of issuance costs
of RM1.387bil. However, this was offset by lower operating cash flows
of RM69mil and payment of dividend of RM366.0mil.

For the nine-month period ended Oct 30, 2012, the earnings fell 29% to RM334.84mil from RM472.04mil.

The
decrease in net profit is mainly due to higher depreciation of
RM113.2mil, decrease in EBITDA of RM46.6mil, and increase in finance
costs of RM70.1mil, which is partly offset by increase in finance income
of RM33.6mil and lower taxation of RM57.7mil.